The federal government has issued new instructions to pacify the protesting business community and decided to gradually ban major purchases, would treat cash deposits as digital transactions, and linked the use of enforcement powers with consent of the grievances redressal committees.
The Federal Board of Revenue (FBR) has issued two separate circulars to explain the taxation measures introduced in the budget and give effect to the understanding reached with the business community. The government has tried to address the concerns of the traders by softening the harsh provisions of the tax laws related to enforcement measures with subordinate legislation.
According to the explanatory circular, the FBR maintained that "the board will also ensure that the provisions related to enforcement are carried out in a judicious manner with the redressal committees, consisting of representatives of business community and the Board".
The traders closed shops in Lahore and Karachi last month against the government measures including giving the FBR arrest powers in tax fraud cases, allowing it to treat half of the cash expenses over Rs200,000 as income, deploying taxmen in business premises and authorising them to arbitrarily reduce tax refund claims.
The FBR has now modified its position on cash expenses and stated that "when a person, whether a national tax number holder or otherwise, deposits the cash against invoices in the bank account of the seller, the payment shall be treated as having taken place through banking channel and no disallowance of the expenditure will be made in this regard under this clause".
The explanation through subordinate legislation suggests a significant change in the FBR's earlier stance.
The FBR, however, added that the expenditure disallowance power was aimed at enabling the formal sector to capture more market share as compared to that of the informal sector. It further said that this provision will not apply to agricultural produce unless it is sold by middle men.
This provision also authorises the board to exempt any class of persons subject to conditions and limitations as it deems appropriate.
While explaining the powers to arrest in tax fraud cases, the FBR said that the powers and procedure of inquiry and investigation in cases of sales tax fraud and other offences warranting prosecution under the Sales Tax Act have been streamlined.
Warrant of arrest may be issued only after approval from a committee, comprising of three members of the FBR, as may be notified by the chairman, and that too only in the cases where fraud involves amount exceeding Rs50 million and nature of the fraud falls within the ambit of any of the first six sub clauses of the clause (37) of section 2, it added.
The FBR said that the officer can only arrest a person, if there is a chance that the accused may tamper with documents, the accused may abscond and the accused does not help investigations despite three served notices
However, the explanatory circular also underlined that the tax commissioner can obtain subscriber's information pertaining to the internet protocol in connection with any inquiry or investigation in tax fraud cases from any internet service provider, telecommunication companies and the Pakistan Telecommunication Authority (PTA).
The FBR further said that sufficient safeguards have been introduced and multiple approvals are required at inquiry stage as well as investigations stage to prevent the misuse of the provisions of prosecution.
The FBR has also altered the mechanisms that it had defined to use artificial intelligence for the purpose of identifying tax evasion by authorising its officers to reduce the amount of sales tax refund claims. The FBR had taken the authority to fix a certain limit of input tax adjustment based on Compliance Risk Management (CRM).
The FBR said that now the "input restrictions and conditions shall not be altered without meaningful consultation with the business and trade representatives related to the sector for which such action is intended".
The explanation implies that if the FBR has any doubts about the attempt to evade taxes by claiming higher refunds, it would first consult with chambers before making any decision.
Last month, the FBR had given nearly 11,000 nudging notices on sales tax anomalies being identified through the CRM system.
The FBR also explained its enforcement powers against hard to tax persons and promote documentation of the economy. It added that these measures include bar on the operation of bank accounts, bar on the transfer of immovable property, sealing of business premises, seizure of immovable property and appointment of a receiver.
"However, these enforcement measures shall be carried out in conformity with natural principles of justice and in a sequential manner to avoid undue hardships", the FBR explained.
It further stated that before taking any extreme measure like freezing bank accounts or business premises, a public notice of hearing will be given and hearing will be conducted jointly by a concerned representative of the chamber of commerce and trade and concerned officer of Inland Revenue.
Such decisions will also be made public by placement on FBR's website and newspapers, it added.
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